Edison blogs

Results from Hyperdynamics’ Fatala-1 are the latest in a number of disappointing wells drilled offshore West Africa. It joins Ophir’s Ayame-1X well in Cote d’Ivoire and ExxonMobil’s Liberian well Mesurado-1 as highly anticipated exploration wells that have failed to deliver over the last year in an effort to extend the successes seen in Mauritania, Senegal and Ghana.

Lowest levels of daily volatility since the 1970s for developed markets

In June we highlighted the low level of volatility in global equity markets. This low volatility regime has continued through the summer and, as Exhibit 1 shows, now represents a dramatic and sudden break with 2016. For the Datastream developed markets index, if measured by the percentage of days with a greater than 25bps close-to-close daily move, the summer of 2017 represents the quietest period for developed markets since inception of the index in 1973. Investors should perhaps consider that market volatility is on average 50% above current levels when building portfolios for the longer-term.

With the reorganisation of its hardware division, Snap Inc. is admitting that it made a wrong turn with its spectacles which despite being cool, no one bought. Steve Horowitz will now become president of technology and report to the chief strategy officer rather than the CEO in what can only be a significant demotion, while a large part of the marketing effort has also been terminated with the COO of hardware, Mark Randall presiding over the vestigial remains.

Google – Thrice bitten, never shy. Fourth time unlikely to be the charm. Google has announced a partnership with HTC that sees some key engineering talent join Google but it remains a complete mystery as to what Google is paying money for.
This will represent the fourth major hardware related transaction that started with Motorola Mobility and continued with Nest and Dropcam.

Conditions for synchronised, if gradual, tightening of policy appear in place

To our surprise yesterday’s Fed statement and projections not only re-confirmed the probability of a rate increase later in the year but also continue to forecast three further rate increases in 2018. Furthermore, the Fed announced the pace of reduction in its balance sheet which, while an initially modest US$10bn per month in October will rise to US$50bn per month by the end of 2018. The initial market reaction has been for the yield curve to flatten further as investors price in an increased probability of a Q4 rate rate increase while US 10y bond yields rose by only 3bps. Equity markets may be sanguine for now but we view this monetary headwind as a slow-burn fuse which may challenge investors again during 2018.

Amazon increases its aggressive land grab. Not content to sit on 70% market share, Amazon is aggressively compensating for the lack of Alexa on smartphones by effectively giving the devices away and pushing e-commerce as hard as it can. A land grab strategy makes complete sense because the more Amazon can drive Alexa usage, the more data it will generate and the better it can become. Usage is the key to making all digital assistants better and this is the one area where Amazon has huge ground to make up compared to Google.

Key wells fail

Azinor Catalyst’s Partridge and Statoil’s Verbier wells were each targeting over 100mmbbls in well drilled areas of the North Sea and were rare examples of exploration in the region with independent involvement. Jersey Oil and Gas (JOG) held 18%WI in Verbier, having successfully attracted Statoil to farm-in to its original 60% WI in 2016, while Azinor held a 100% WI in Partridge (subject to back in options with third parties).